Changes in climate and land use significantly impact downstream water availability. Quantifying these effects in the Ethiopian Highlands is crucial, as 85% of the transboundary water in Egypt and Sudan originates from these highlands. While the impact of climate change on water availability has been widely studied, few experimental studies have examined how it is affected by eucalyptus reforestation. Therefore, the objective was to investigate how eucalyptus expansion impairs water availability in the Ethiopian Highlands. The study was conducted in the 39 km2 Amen watershed, located in the upper reaches of the Blue Nile. Rainfall data were collected from local agencies from 1990 to 2024, while streamflow data were available only for 2002–2009 and 2015–2018. Actual evapotranspiration was obtained using the WaPOR portal, and land use was derived from Landsat 5 TM and Landsat 8 OLI. The satellite images showed that the eucalyptus acreage increased from 238 ha in 2001 to 799 ha in 2024, or 24 ha y−1. The actual evapotranspiration of eucalyptus was up to 30% greater than that of other land uses during the dry monsoon phase (January to March), resulting in decreased water storage in the watershed over a 23-year period. Since runoff is generated by saturation excess runoff, it takes longer for the valley bottoms to become saturated. In the 2002–2009 period, it took an average of around 160 mm of cumulative effective rain for significant runoff to start, and from 2015 to 2018, 274 mm was needed. Additionally, base flow decreased significantly. The annual runoff trended upward when the annual rainfall was more than the additional amount of water evaporated by eucalyptus, but decreased otherwise.